Sunday, January 5, 2014

Managing Forests for Everyone

The forested private land is largely managed as a profitable asset—the harvesting, planting, and other management is done from the viewpoint of the landowner. As is often the case, this approach leaves a number of other interested parties with little say about their environment.

Mature forests are an excellent recreational landscape. They also form a habitat for many species. Forest near Kaagvere, Estonia, in December 2013.

Forests are a major component of landscape and environment. This means there are many people (but also other living organisms) with stakes in the forests. Below, I focus on recreational landscape users, but most of my arguments are valid for the other users as well, including the non-human ones. The main problem lies here—while landowners profit almost exclusively from logging, the others will mostly enjoy the landscape where the forests are left intact. (I will ignore such interest groups who profit from logging, such as forest industry.) This is a textbook case of negative externalities.

The most straightforward solution is to let all the recreational landscape users pay the landowners according to their valuation of the intact forests. Obviously, such an income flow will cease after the forest is cut, and will count as a cost of clearcutting. Unfortunately, this approach will not work—it offers a perfect opportunity to shirk and hide your private valuation, and it would be extremely costly to locate the landowners and to pay each of them a few euros every time you walk through the forest. It would also put all the burden of adjustment to the recreational visitors.

A public-sector version of the same idea would look like this: determine the average value of various types of landscape, and pay the landowners accordingly, but only if they maintain it in that particular state. Such rules can also take the form of individual contracts between the government and landowners with no new legislation introduced. The payment should be financed through some sort of general taxes, such as payroll tax. This approach is technically feasible. Here landowners win, the society bears all the burden.

A third option is to introduce the same reform while shifting the burden to the landholders. The government taxes the land according to "non-likeability" of the landscape. If the property is not suitable for recreational use, you pay a lot. If it is a nice natural area open for everyone, you pay little. If forest is cut, the land tax increases accordingly. (In case of well-functioning financial markets, this is equivalent to logging tax.)

This proposal is not free of problems either. As all the burden is shifted to the landowners, this leads to falling land prices and hence a decreasing property value. Second, the "non-likeability" is hard to determine. It is possible to evaluate certain types of landscapes, but not everything. Even more, the policymakers need simple rules to avoid misunderstandings and too much potential for corruption. Third, it does not take into account the potential value of the landscape. Some landscape types are inherently more valuable, and even more, we can only enjoy what is at a reasonable distance from us. The value of places far away is smaller. The correct approach is not to tax the "non-likeability", but the difference between the potential and the current value. Can policymakers handle that?

Middle-aged temperate forest in Northern Europe. The left-hand side of the road is scheduled to be cut soon. (And sorry for the cellphone photo...)

Pulling the three ideas together, I think a reasonable way forward is to combine the second and the third possibility. One should differentiate land tax according to a simple scale of landscape value, for instance forest age. Young forests (0-15 years) will be subject to high taxes, the mature ones (100+) will have low tax. This data can be collected and handled. Second, the municipalities should buy recreational land and also make contracts with the landholders to stipulate mutually best management. This combined approach would shift part of the costs to the landowners, and part to the society. The taxes should be established step-by-step over many years. However, although feasible, this policy is not free of problems either—the landholders around rich municipalities (big cities) win while those far away loose.